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Long-Span Multi-Layer Spillovers between Moments of Advanced Equity Markets: The Role of Climate Risks

Author

Listed:
  • Matteo Foglia

    (Department of Economics and Finance, University of Bari ``Aldo Moro", Italy)

  • Vasilios Plakandaras

    (Department of Economics, Democritus University of Thrace, Komotini, Greece)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Private Bag X20, Hatfield 0028, South Africa)

  • Qiang Ji

    (Institutes of Science and Development, Chinese Academy of Sciences, Beijing, China; School of Public Policy and Management, University of Chinese Academy of Sciences, Beijing, China)

Abstract
In this paper, we examine the potential spillovers between returns, volatility, skewness and kurtosis of developed stock markets under the lenses of rare disaster events, proxied by climate risks. The goal of this study is to depict the transmission mechanism of rare disaster events involving moments within and between advanced equity markets. In doing so, we provide estimates of the aforementioned moments based on model-implied distributions of stock returns, derived from the quantile autoregressive distributed lag mixed-frequency data sampling (QADL-MIDAS) method, using a long span of data. Our research framework includes the G7 and Switzerland over the period December 1924 to February 2023, where we apply a multilayer approach to spillovers, adding the effect of climate risk to our analysis. Our empirical findings are as follows: firstly, spillovers are significant within- and across stock markets for each of the four moments. Secondly, based on a nonparametric causality-in-quantiles approach, changes in temperature anomalies, have the predictive power to shape the entire conditional distribution of various metrics of spillover involving single- and multiple-layers of returns and risks layers. In sum, we show that the multi-layer approach offers a comprehensive and nuanced view of how stock market-related information is transmitted across the stock markets of advanced economies, carrying implications for investors and policymakers.

Suggested Citation

  • Matteo Foglia & Vasilios Plakandaras & Rangan Gupta & Qiang Ji, 2024. "Long-Span Multi-Layer Spillovers between Moments of Advanced Equity Markets: The Role of Climate Risks," Working Papers 202415, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:202415
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    References listed on IDEAS

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    More about this item

    Keywords

    Returns and risk spillovers; advanced equity markets; multi-layer spillover approach; nonparametric causality-in-quantiles method; climate risks; predictability;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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